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BMI View: Mexico's historic energy sector liberalisation marks the start of
a fundamental shift for the country's hydrocarbons sector. Whilst it will be a
number of years before results are seen in the country's production and reserves
data, over the long term the reforms will bolster upstream activity and reverse
a decade-long decline in oil production. Pemex's upstream activity will remain
limited over the next two years amid the broad industry downturn.
Latest Updates And Key Forecasts
■ Weak fundamentals combined with bearish speculative positioning have sustained
weakness of benchmark prices below profitable levels for Mexican crude
production. Our forecast for continued price volatility over the next several
months will weigh on Mexico's already downbeat outlook, limiting investment into
existing projects by state-owned Petróleos Mexicanos (Pemex). We therefore
maintain our downbeat expectation for total liquids production in 2016 at -6.9%
y-o-y implying a reduction of 180,000b/d this year. This compares to a decline
of 6.4% y-o-y in 2015 and extends Mexico's overall losses for a 12th consecutive
■ The Mexican government's USD4.2bn bailout of Pemex underscores the state-owned
oil company's continued struggles in the face of an elevated debt burden,
sizeable arrears to oilfield service providers and limited liquidity. While the
bailout will weigh on Mexico's sovereign credentials in the short term, we
believe damage to investor sentiment will be mitigated by the government's
history of prudent macroeconomic policies and Pemex's ongoing cost-cutting